Budget Follies, Part 1

In the president’s recently released FY2006 budget, he grossly mismanages the country’s finances by ensuring the tax cuts for the wealthy stay in place (and in fact, get extended), even at the expense of the poor, the elderly and our veterans. It is very characteristic of the Administration’s priorities, regardless of what it may publicly state. It is also evidence of the fantasy world in which the Administration lives about the economy and the fiscal state of the U.S. For example, in the Overview of the President’s 2006 budget, it asserts that “With a growing economy, tax receipts are rising, which is helping to bring down the deficit as a percentage of GDP” (GPO, p. 3). This statement is misleading for several reasons. First off, the deficit is only shrinking in relation to the over-inflated estimates from a year ago that the Administration continues to use as a baseline. They even admit as much in a table a page later that shows the projection from February 2004 for the fiscal year 2004 deficit of 4.5% of GDP when it turned out to be 3.6% when all was said and done for. Additionally, the deficit that the Administration uses in the budget proposal does not include many of the most expensive programs on their adgenda: the wars in Iraq and Afghanistan and their privatization of Social Security. Moreover, the true effect of the tax cuts of 2001, 2002, 2003 and their extension in 2004 are not adequately included in deficit projections that take current policy as the baseline. This assumes quite unrealistically that all provisions will expire once they reach the sunset deadline in the laws. From another angle, the statement is misleading by asserting that the economy is growing as are tax revenues. While on a base level this is true, it is to be expected given that we are still in recovery from the 2001 recession. Furthermore, the rebound is coming at a slower pace than in previous recoveries. The gains in tax revenue are gradually being shifted from the very wealthy to the lower and middle classes by the may Bush tax cuts. Also, although the economy is growing (in terms of GDP), the benefits are largely contained to profits. The pace of recovery in employment growth is lackluster at best and wages have remained stagnant in real terms over the entire first Bush Administration. More on the inaccuracies of the budget later, when I have a chance to read more of it.